Uncompromising Ethics, Dedication to Customer Service and Hard Work

Client Profile:

Keany Produce Company is one of the Washington area’s largest wholesale produce companies. This previously small, family-owned business now employs over 400 people with a fleet of over 140 trucks, with the Keany family still at the heart of the company.

The Challenge:

After two years of working for a produce wholesaler, Kevin Keany took a gamble and started his own company. With one van and a checkbook, he turned to Steve Halt of Halt, Buzas & Powell (HBP) for accounting advice.

In the early days Steve Halt focused primarily on the company’s business taxes and the family’s personal tax preparation. Steve also conducted annual financial reviews and provided input to the organization’s business plan. Steve stayed in steady contact with Keany, and their frequent conversations were augmented by more formalized monthly financial planning meetings.

The Solution:

HBP has supplied financial and accounting advice to Keany and his family every step of the way. Kevin Keany has leveraged Steve’s practical and strategic expertise to grow from a one-man operation to one of the largest produce distributors in the Washington D.C. area.

Despite Keany Produce’s size, the principals of this family-owned business have not strayed from their commitment to hands-on customer service. Steve Halt has continued as their chief financial advisor over the years, giving them the same level of personal service and hands-on support that they have consistently given their own customers.

The Result:

Steve Halt and the team at HBP have always measured the firm’s success in terms of their clients’ successes, and Keany Produce is a shining example. Keany originally selected HBP in 1978 because Kevin Keany knew Steve and HBP was in a convenient location. But as the Keany Produce Company grew, HBP had the expertise to customize their services to adapt to the many changes. Keany Produce also sites HBP’s character—attentive to the needs of Keany, and consistently providing courteous and professional service—as a reason for their longstanding relationship.

Today, HBP provides a full range of tax and financial management services for the Keany Produce Company. In addition to handling the company’s and the principals’ taxes. HBP also conducts periodic reviews of Keany’s financial operations—looking at broad issues, ranging from retirement plans and employee stock ownership plans to the implications of possible acquisitions. The HBP team handles the nitty-gritty details, too, such as meeting tax deadlines and corresponding with the IRS and other tax agencies—even analyzing Keany’s maintenance department, including its training manuals.

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The Tax Cuts and Jobs Act passed in late 2017 brought a host
of changes to the US tax code. The change that inspired the biggest buzz and
perhaps the most confusion is the new 20 percent deduction of Qualified
Business Income (QBI) for specified passthrough companies. Government
contractors – along with their tax advisors – have been poring over the updated
tax code ever since in an attempt to determine whether they can take advantage
of this significant tax break.

That’s because while the new 199A QBI deduction is certainly
appealing, it’s not available to everyone. The IRS included a number of
limitations on who qualifies for the deduction as well as some grey areas in
how the law should be interpreted, leaving business owners and accountants thirsty
for additional guidance.

Following limited clarifications in 2018, the IRS issued final regulations and additional guidance related to the QBI deduction in January of 2019, along with proposed regulations not yet finalized. Although the new guidance is both welcome and helpful, many government contractors remain uncertain of whether they can claim the deduction or not.

The 20 percent deduction does not apply to a Specified Service Trade or Business (SSTB). For the purposes of the new law, an SSTB is a trade or business that provides any of the following services: health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investment and investing management, trading, dealing in securities, or any business where the principal asset is the reputation or skill of one or more of its employees or owners [Treas. Reg. 1.199A-5(b)(1)].

Government contractors often include consulting as a
component of their services, making it difficult to determine if the business
qualifies for the deduction. In many cases, a closer look at the definitions
and exceptions included in the final and proposed regulations can help clarify
the issue for these businesses.

The IRS regulation defines consulting (in this context only) as “the provision of professional advice and counsel to clients to assist the client in achieving goals and solving problems.” Additionally, it specifies that “the performance of services in the field of consulting does not include the performance of services other than advice and counsel,” such as sales (or economically similar services) or the provision of training and educational courses.

In assessing the applicability of the deduction, government
contractors should be aware that a business can provide some consulting
services without being automatically defined as an SSTB and, as a result,
barred from claiming the QBI deduction.

The final regulations state that “performance of services in the field of consulting does not include the performance of consulting services embedded in, or ancillary to, the sale of goods or performance of services on behalf of a trade or business that is otherwise not an SSTB (such as typical services provided by a building contractor) if there is no separate payment for the consulting services.”

To prevent a single SSTB transaction from disqualifying the entire trade or business from the 199A deduction, the IRS also provides a de minimis exception to taxpayers. For trades or businesses with less than $25 million in gross receipts, an activity will not cause the trade or business to be classified as an SSTB if less than 10 percent of the gross receipts are attributable to the performance of services in one of the prohibited fields. If the trade or business has gross receipts greater than $25 million, the de minimis exception is reduced to 5 percent of the gross receipts. [Treas. Reg. 1.199A-5(c)(1)]

Understanding the 199A QBI deduction and how to properly
apply it is a challenging endeavor, to be sure. Government contractors should
seek expert professional assistance in interpreting and applying this aspect of
the tax code. However, they can take comfort in the clear fact that providing
consulting services does not necessarily prevent them from qualifying for this
valuable tax deduction.

To learn more about the new 199A QBI deduction and other tax savings opportunities that may be available to your government contracting business, talk to the tax professionals at Halt, Buzas & Powell today. We’ll help you navigate the maze of IRS rules and regulations to minimize your tax liability while keeping you in full compliance with the law – no matter how complicated.

It’s human nature to grow overwhelmed and stressed during a
busy period at work. While diving blindly into a project with little
preparation may seem like the most feasible way to check items off your to-do
list, this often fails to pay off in the long run. Instead, try thinking
strategically about your goals and how you will achieve them practically. This
approach may take more time in the immediate sense, but tackling your goals
this way can save you hours down the road.

Upcoming Events

Join us Monday, February 25, 2019 from 5-7 p.m. at Chesepiooc Brewery for the February Monthly Mixer with the Greater Crofton Chamber of Commerce. Come mingle, enjoy appetizers and drinks, and enter to win a swag bag and $50 gift card on us! Please register by visiting http://bit.ly/HBP25FebGCCC. We look forward to having you!

We’re proud to partner with the Alexandria Chamber of Commerce on this event. Join us at United Way for lunch, where two of the most impactful nonprofit leaders in the area will speak about their experiences! Comfort Cases founder Rob Scheer and Global Impact President and Chief Executive Officer Scott Jackson will each give a […]